Monterey City Council approves budget following the failure of the Measure D tax increase.

With the majority of votes counted and the June 2, 2026 election results set to be certified at the end of the month, the tally shows that Measure D, the City of Monterey’s potential 0.375-percent sales tax increase, has failed at the polls by about 160 votes.

Monterey city staff anticipated that the tax measure would generate about $3 million in its first year and $4.5 million in subsequent years. With its failure, they had to find different strategies to compensate for the operating deficit projected in fiscal year 2026-2027.

Monterey City Council unanimously approved the budget on Tuesday, June 16.

”It is no secret that our cost model that we have employed for a number of years just isn’t working anymore,” said Monterey City Manager Dante Hall at the meeting. “Our revenues are relatively flat and we’re seeing growth in expenditures and in cost just like everyone else is, and so we have a deficit.” Hall said that city staff have balanced the 2026-2027 budget, “but it doesn’t solve the problem.” The upcoming budget anticipates roughly $114 million in revenue and $126 million in expenditures, leaving about a $11.7 million operating deficit. To make up for the gap, the city will not tap into its reserves but will use funds from the Neighborhood Community Improvement Project fund and freeze 30 unfilled city staff positions, among other strategies.

To determine which positions to freeze, each city department assessed the legal obligations, operational needs, potential risks and financial impacts of not filling the positions, such as productivity impacts and potential overtime costs. By freezing the 30 positions – which include two park maintenance workers for a savings of $206,000, two police officers (saving $364,000), three firefighters at $477,000 and a traffic engineer at $231,000 – finance staff estimates a total savings of approximately $4.6 million.

The City Councilalso approved transferring $3.5 million from the Neighborhood Community Improvement Project fund to the general fund to help cover the operational shortfall, alongside funding cuts to city-sponsored events and support programs for city residents, such as the rental assistance program, which will see a $125,000 reduction.

With transfers out of and into the general fund from other city funds, including the parking fund and others totaling a net gain of about $750,000, combined with the other strategies including the savings from frozen positions, the city’s general fund operating budget becomes balanced with about $25,000 above the deficit.

Because city staff anticipates that expenditures will continue to outweigh revenues in the years ahead, driven by increasing operational costs and other factors, resulting in an ongoing structural deficit, city staff will launch their “Roadmap to Resilience,” which will consist of a “deeper dive” into city finances, according to Hall.

The six-point roadmap, which starts with “understanding the fiscal gap,” continues with “strengthening organizational efficiency,” and ends with “delivering sustainable future budgets,” is tentatively scheduled to be presented to the City Council in August.